Experts Disagree On Whether Maine Home Care Referendum Will Result In ‘Marriage Penalty’ Tax

Aug 17, 2018

A ballot question this fall that would levy a tax on high income earners in Maine to pay for home care for seniors and people with disabilities is generating debate about who will be taxed, and how.

Officials within the LePage administration say that the proposal would create a marriage penalty tax. But supporters of the initiative say that's a false interpretation that doesn’t reflect the intent of the law.

This fall, Maine voters will decide whether to create a universal home care program that guarantees that seniors and people with disabilities can get support to stay in their homes. The program would be funded by enacting a 3.8 percent tax on earned and unearned income above the social security tax threshold, which is $128,400.

The debate is how that tax would be applied to household income. This week, the Department of Administrative and Financial Services issued an analysis of the proposal.

The way Commissioner Alec Porteous interprets it, the tax would penalize couples who file jointly.

"If you've got a married couple, each earning 75,000 a year for example..." and they file separately, then they don't meet that Social Security tax threshold.

But if they file jointly "...for combined household income of $150,000,” that combined income, Porteous says, now exceeds that social security tax threshold.

"Those earnings above $128,400 would now be taxed at that surtax level,” says Porteous.

This would create what Porteous — and the state economist in her report — calls a marriage penalty. Because individually, the couple wouldn't pay the 3.8 percent tax, but once they combine their incomes, they would.

Mike Tipping is a spokesperson for Mainers for Homecare, the organization behind the ballot initiative. He says, "They are completely wrong about that...we wrote the policy. We know what it says."

Tipping, along with the progressive-leaning Maine Center for Economic Policy (MECEP), say that the proposal would not penalize married couples for filing jointly.

MECEP'S Executive Director Garrett Martin says that's because the tax on earned income is a payroll tax, deducted on individual's income throughout the year.

"If you have two individuals earning $80,000 a year who are married, then those individuals are already paying Social Security taxes through their payroll taxes that are being deducted by their employer,” Martin says. “And so when they go to file their income taxes, that is already reflected.”

But the language of the ballot question that will go before voters says that it would impose a new tax on individuals and families. The word 'families,' says Martin, was added to reflect that the proposal would also tax a household's unearned income.

"The way the Social Security threshold currently works is that it is only applied to wage income,” says Martin. “And so you can have households that are earning significantly more above that threshold through dividends, investments, and other idle forms of income, that is not being taxed at all."

But a spokesperson for the Secretary of State's Office says that the word 'families' was added to the question because the office believes the tax would apply to joint filers. In an email, Kristen Muszynski said the office can't comment, however, on how the law would be applied if it passes in November.

The Attorney General's office declined to provide their interpretation of the law.

Garrett Martin says the issue may ultimately have to be resolved by the legislature, who would be tasked with implementing the home care program if the referendum passes.